Lecture 4 Brand Extension

1. Lecture 4 Brand Extension Dr. Lucy Ting Lucy.Ting@manchester.ac.uk

2. Agenda • Brand Extension • Definition • Advantages • Disadvantages • Evaluation of Brand Extension Opportunities • 5 Steps of Introducing Brand Extensions

3. What is Brand Extension?

4. Growth Share Matrix Products Existing New Market Penetration Strategy Product Development Strategy Existing Markets Market Development Strategy Diversification Strategy New Ansoff,I.(1987) “Corporate Strategy”, McGraw-Hill

5. Market Penetration • Same segment • Same products • Increase customers number • Increase purchased quantity • Increase purchase frequency

6. Market Development • New segment • Same product assortment • New segment of the market • Geographical expansion £24.50

7. Product Development • Same segment • New product • New packaging • New product

8. Diversification • New market • New products • Related diversification • Vertical integration • Unrelated diversification

9. Growth Share Matrix Products Existing New Market Penetration Strategy Product Development Strategy Existing Markets Market Development Strategy DiversificationStrategy New Ansoff,I.(1987) “Corporate Strategy”, McGraw-Hill

10. New Product Development • Branding Strategies • New brand for the new product • Existing brand for the new product • A combination of a new brand and an existing brand

11. Definition • A brand extension occurs when a firm attach established brand names to new products, taps into consumers favourable associations with the brand name in an attempt to create financial value for the firm. Lane & Jacobson (1995) “Stock market reactions to brand extension announcements: The effects of brand attitude andfamiliarity”, Journal of Marketing, 59(1), pp. 63-77

12. Brand Extension • Brand Extension Strategies • Line Extension • Marketers apply the parent brand to a new product that targets a new market segment within a product category the parent brand currently serves • Category Extension • Marketers apply the parent brand to enter a different product category from the one it currently serves

13. Pros & Cons • Advantages of Brand Extensions • Facilitate New Product Acceptance • Provide Feedback Benefits to the Parent Brand and Company Keller (2008) Chpt 12

14. Pros & Cons • Facilitate New Product Acceptance • Improve Brand Image • Reduce Risk Perceived by Customers • Increase the Probability of Gaining Distribution and Trial • Permit Consumer Variety-Seeking Keller and Aaker (1992), “The Effects of Sequential Introduction of Brand Extensions,,” Journal of Marketing Research, 29() pp. 35-50

15. Pros & Cons • Facilitate New Product Acceptance • Increase Efficiency of Promotional Expenditure • Reduce Costs of Introductory and Follow-Up Marketing Programs • Avoid Cost of Developing a New Brand • Allow for Packaging and Labelling Efficiencies Sullivan (1992), “Brand Extensions: When to Use Them,” Management Science, 38(6), pp. 793-806

16. Pros & Cons • Provide Feedback Benefits to the Parent Brand • Clarify Brand Meaning • Enhance the Parent Brand Image • Bring new customers into brand franchise and increase market coverage • Revitalise the brand • Permit subsequent extensions Keller and Aaker (1992), “The Effects of Sequential Introduction of Brand Extensions,,” Journal of Marketing Research, 29() pp. 35-50

17. Pros & Cons • Disadvantages of Brand Extensions • Can confuse or frustrate consumers • Can encounter retailer resistance • Can fail and hurt parent brand image • Can succeed but cannibalise sales of parent brand Keller (2008) Chpt 12

18. Pros & Cons • Disadvantages of Brand Extensions • Can succeed but diminish identification with any one category • Can succeed but hurt the image of parent brand • Can dilute brand meaning • Can cause the company to forgo the chance to develop a new brand Sullivan (1990), “The Impact of Brand Extensions on Parent Brand Memory Structures and Retrieval Processes,” Journal of Business, 63(3), pp. 309-329

19. Brand Extension Opportunities Keller (2008) Chpt 12

20. Define Consumer Knowledge Identify Possible Extensions Evaluate the Potential of the Extensions Design Marketing Programs to Launch Extension Evaluate Extension Success and Effects on Parent Brand Equity 5-Step Model

21. Step 1 • Define Actual and Desired Consumer Knowledge about the Brand • Understanding the consumers, including needs/wants/motivations/attitudes. • Understand the parent brand, including the brand awareness/brand association/brand positioning/brand meaning

22. Step 2 • Identify Possible Extension Opportunities • Line Extension • Category Extension • Would our customers think the parent brand fit with the new product category? • Would the resources of our firm and the meaning of the brand meet the expectations? • Is it easy for our competitors to copy?

23. Step 3 • Evaluate the Potential of the Extension Candidate • Consumer Factors • Strength • Favourability • Uniqueness • Compelling • Relevance • Consistency • Salience Brand Extension Equity: Brand Awareness Contribution to Parent Brand Equity: Consumer Feedback

24. Step 3 • Evaluate the Potential of the Extension Candidate • Firm and Competitive Factors • How effectively are the corporate assets leveraged in the extension setting? • How relevant are existing marketing programs, perceived, benefits, and target customers to the extension? • What are the competitive advantages to the extension as consumers perceive them? • What are the possible reactions initiated by competitors as a result?

25. Step 4 • Design Marketing Programs to Launch Extension • Choosing Brand Elements • Packaging • Designing Optimal Marketing Program • Brand Positioning • Leveraging Secondary Brand Associations

26. Step 5 • Evaluate Extension Success and Effects on Parent Brand Equity • Customer Segmentation • Consumer Desires • Pricing Breadth • Excess Capacity • Short-term Gain • Competitive Intensity • Trade Pressure Quelch & Kenny (1994) “Extend Profits, Not Product Lines”, Harvard Business Review, 72(5), pp. 153-160